Alibaba and its affiliate are pouring nearly $1 billion into a local services startup that will focus on food delivery

Alibaba Group's Executive Chairman Ma looks on ahead of working dinner with Russian President Putin at SPIEF 2015 in St. Petersburg Thomson Reuters SHANGHAI (Reuters) - Alibaba Group Holding Ltd and its affiliate Ant Financial will invest nearly $1 billion in a joint venture that they hope can tap China's fast-growing local services market, focusing at first on food delivery.

Local services, also known as online-to-offline (O2O), have been booming in China, with some of the country's most valuable startups like taxi-hailing app Didi Kuaidi operating in this area. Apart from calling cabs, these apps link smartphone users with offline businesses to offer things like delivery and nearby food and leisure deals.

As more Chinese use phones for everything from shopping to booking restaurants, local services have become a key battleground for China's internet giants Alibaba, Tencent Holdings Ltd and Baidu Inc as they try to attract users to their platforms.

"The joint venture, Koubei, will integrate the convenient aspects of mobile commerce and big data to transform and upgrade China's local services sector," Alibaba and Ant Financial said in a statement.

The two companies will each invest 3 billion yuan ($483 million) in Koubei and each hold a 50 percent equity stake in the business, the announcement said.

Koubei will initially focus on food and beverages, with Alibaba's food ordering and delivery business, Taodiandian, and Ant Financial's offline merchant resources becoming a core part of Koubei's operations.

Over time, Ant Financial's merchant services in offline retail, healthcare and vending machines will be rolled into the joint venture, it said.

Growing big in O2O can come at a heavy cost. Rival companies are pumping hundreds of millions of dollars into marketing schemes and subsidies in an effort to expand. Reducing the scale of that spending was a driving factor in Didi and Kuaidi's taxi app merger last February.

Users will be able to access Koubei through Ant Financial's Alipay Wallet app and Alibaba's Mobile Taobao app, the announcement said. The business would be run by Samuel Fan, from Ant Financial's payment business unit.

Ant Financial Services Group is controlled by Alibaba's Executive Chairman Jack Ma and other senior Alibaba executives. It runs China's most popular online payment platform, Alipay, and one of the country's biggest money market funds, Yu'e Bao. This week it will launch an online-only bank dubbed MYbank.

(Reporting by John Ruwitch in Shanghai and Paul Carsten in Beijing; Editing by Richard Pullin)